Employee or Contractor? Vermont Supreme Court Tackles the Gig Economy

Joe Meccia laid his first tiles in the shower of his family's Jersey Shore apartment when he was 12. Today, the 64-year-old craftsman lives in Huntington, making a living remodeling homes and doing small jobs for other builders. Meccia, who considers himself a one-man business, is known for his intricate tile work — but, for the past few years, builders have been reluctant to hire him.

They've been "walking on eggshells," Meccia explained, because they're worried the state will make the costly determination that he's their employee.

On June 23, the Vermont Supreme Court took care of his conundrum. In a case involving another solo contractor — a carpenter who did work for a Swanton home-building business — the justices have unanimously ruled that those who operate limited liability companies, or LLCs, don't count as employees, at least for the purposes of paying for unemployment insurance.

"This is incredibly significant," said Maureen Connolly, executive officer at the Home Builders and Remodelers Association of Northern Vermont, which advocates on behalf of approximately 260 builders. "It allows the small Vermont businesses to remain independent."

"I can breathe a bit now," said Meccia, the sole owner and employee of Joseph Meccia Builder, LLC.

Carpenters aren't the only ones feeling relieved. The court's determination that LLCs aren't individuals could have a far-reaching effect on members of Vermont's freelance economy, ranging from web developers to photographers to Uber drivers.

But while the June 23 ruling may have brought long-sought clarity, it won't close the books on an intractable debate over when an independent contractor is actually an employee. The dispute is escalating nationally with the rise of a "gig economy" that hinges on flexible labor, and it's especially contentious in Vermont, which cherishes both its labor rights and its entrepreneurs.

Lawmakers in Montpelier have been struggling for years to craft a coherent definition of an "independent contractor" acceptable to both business and labor interests. Last month's Supreme Court ruling will, if anything, reinvigorate the debate during the 2018 legislative session.

Currently, the Vermont Department of Labor assumes that workers are employees unless proven otherwise, which means their bosses must pay unemployment insurance and workers' compensation on their behalf. The cost of the latter can vary widely, but a home-building company could easily pay 10 percent of payroll costs on premiums. One builder told Seven Days he pays about $1,300 per employee for unemployment insurance.

Confusingly, the department uses one test to determine whether someone is an independent contractor for the purposes of paying unemployment insurance — and a different one for determining workers' compensation payments.

In Vermont, a worker qualifies as an independent contractor for the purposes of workers' comp only if he or she is doing work that falls outside the normal scope of business and is free from supervision by the entity that hired him or her.

For unemployment insurance, independent contractors must meet both of those requirements and be able to show that they regularly work for other businesses.

Labor advocates are fine with the current standards but accuse the DOL of failing to stop companies that intentionally misclassify workers. More than a year and a half has elapsed since the department began investigating whether Uber drivers are independent contractors, as the company claims, but it has yet to announce a decision. As a result, labor advocates argue, drivers could be losing out on benefits to which they're entitled.

"The real consequence is: If [Uber drivers] get in an accident and they are hurt, Uber provides no protection to them in terms of workers' compensation," said David Mickenberg, a lobbyist for several labor unions. They aren't eligible for unemployment insurance during the interim, either.

On the other side of the debate, critics contend that the state's definition of an employee is so broad that it encompasses virtually every independent worker in the state.

"There needs to be some recognition that the workplace is changing," said Jeff Couture, executive director of the Vermont Technology Alliance, citing a DOL study that found Vermont had more than 3,000 tech freelancers as of 2014. According to the tech promoter, "A lot of freelancers in the tech sector want to be independent contractors rather than employees."

Couture made the case that classifying these individuals as employees disrupts the symbiotic relationship between workers who are self-employed by choice and businesses that need flexible employment arrangements.